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Growing investment and cooperation: China courts South Africa, Angola and Botswana

6th December 2010

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In a move to further bolster China-Africa relations, Vice-President Xi Jinping visited three African countries in mid-November 2010. His visit to South Africa, Angola and Botswana highlighted China’s growing investment interest in Africa, estimated to be more than US$ 174 billion. Being a major financier to a continent that is predominantly marginalised by Western investors, Africa has become the third largest recipient of China’s Outward Direct Investment (ODI) in recent years. According to the 2008 Statistical Bulletin of China’s ODI, the share of China’s ODI in Africa increased from 2.6% in 2003 to 9.8% in 2008.


The benefits that Chinese investment bring to Africa are extensive, and the large amounts of Chinese capital that has been injected into African markets provides the urgently needed funding to increase development on the continent. China’s ODI therefore plays a positive role in improving infrastructure, increasing productivity, boosting trade and raising the standard of living of many Africans.

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This paper discusses the visit of Xi to three Southern African countries, outlining the areas of potential cooperation with China and also examining the rationale behind China’s growing role on the African continent.


Xi Jinping’s visit: Strengthening cooperation with South Africa, Angola and Botswana

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On 16 November 2010, Xi arrived in South Africa for discussions on bolstering trade. Xi and South Africa’s Deputy President, Kgalema Motlanthe co-chaired a bilateral commission to discuss cooperation between the two countries. China, which in 2009, overtook the United States (US) to become South Africa's largest export destination, mainly imports raw materials such as iron ore and refined iron and steel, to fuel its rapidly expanding economy.(2) As Africa’s largest economy, trade between China and South Africa in 2010 is estimated to total US$ 35 billion as opposed to US$ 13 billion in 2006.(3)


On 20 November 2010, China and Angola announced that they had decided to establish a strategic partnership to continue bolstering bilateral relations. Both sides agreed that China and Angola would continue to be strategic cooperation partners, and that boosting their comprehensive collaboration served the fundamental and long-term interests of both nations.


Interestingly, Angola is Africa's second biggest oil producer after Nigeria and has had strong ties to China for decades. Since 2002, China has given Angola US$ 4.5 billion in loans, while bilateral trade between the two countries will reach an estimated US$ 20 billion in 2010.(4) As Angola plans to reduce its dependence on oil, China’s presence could create further scope to improve relations; thus allowing China to see and develop potential Angolan sectors such as agriculture, service industries, infrastructure and renewable energy.


After his visit to Angola, Xi arrived in Botswana. His visit included meetings with President Ian Khama and the signing of several agreements. As with South Africa and Angola, the main purpose of the visit was to further strengthen cooperation and relations between the two countries. Xi also undertook a tour of Diamond Trading Company Botswana, which is the world’s largest diamond sorting and valuing operation and a joint venture between the Botswana Government and De Beers. The highlights of the visit also included the signing of the agreement on Economic and Technical Cooperation (ETC), which offers Botswana a grant of US$ 6 million for development projects. Other agreements that were signed during the visit included a Memorandum of Understanding (MoU) on science and technology, one between Botswana Power Corporation (BPC), China Development Bank and Golden Concord Group on cooperation in the areas of infrastructure and energy development.


Another agreement was signed between Botswana’s Ministry of Finance and Development Planning and Export-Import (EXIM) Bank of China on financial support for development projects and the Letters of Exchange on a grant to build a primary school in Botswana. Botswana, the world’s leading producer of diamonds, and China established diplomatic relations in 1975 and the two countries have been cooperating in various areas such as public health, law enforcement, human resource development and infrastructure development ever since.


Africa’s resources: What China needs from South Africa, Angola and Botswana


It is no secret that the resource base of Africa is enormous. Africa is home to powerful rivers, massive concentrations of strategic minerals, and important petroleum and uranium deposits. Nevertheless, Africa is also comprised mainly of developing states with limited capacity and infrastructure. Western development strategies have not brought about the positive results expected, and Africa has remained a victim of Cold War politics, cultural differences and an intrusive colonial heritage.


As a historical friend to the continent, China is in the midst of a resurgent African initiative based on a ‘politics free’ development model, which is predominantly aimed at securing access to Africa’s resource supplies - mainly energy and minerals.(5) The reason for China’s global push and dominant entrance into Africa are based on issues within its own territory. Since free market reforms were implemented in 1978, China’s Gross Domestic Product (GDP) has grown an average 9.9% each year.(6) China is thus tapping into a variety of resource markets to feed its growing economy and population. Moreover, it has been estimated that “China’s population will increase by approximately 123 million by 2025 from a current population of 1.3 billion” and the Government fears that without sufficient economic growth, a decrease in political legitimacy could grow to a level that would threaten the Chinese Communist Party control.(7)


If China wishes to continue its current pace of economic growth, it will require access to foreign resources, as it cannot sustain itself on the levels of access to fuel and minerals it has now. China is dependent on mineral imports for they supply the balance of industrial demand. More importantly, China needs to be sure that access to those resources is secure and guaranteed. This is why China is seeking many of its mineral supplies in Africa. Understanding perhaps better than any other state how its increasing demand and future expected consumption will further tighten world markets, China is taking action to create new reserves of these minerals and establish bilateral relationships that will ensure it of new supply.


Africa remains a major supplier of strategically important minerals. Essential industrial metals such as aluminium, copper, iron ore, lead, nickel, coal, zinc and uranium are all present on the African continent and also in large quantities. Particularly important are the minerals of chromium, cobalt, platinum group metals, and manganese, which are needed to operate weapons systems. What is most notable in this regard is that there is no substitute for any of these minerals, so generic models or substitutes are impossible. Similarly, the reserve bases of these minerals are highly concentrated geographically in South Africa, Democratic Republic of Congo (DRC), Zimbabwe, and Zambia, and are not present in China or the US in sufficient quantities to meet demand.


For example, “33% of the world reserve base of chromium is found in South Africa, and South Africa and Kazakhstan alone account for 95% of world chromium resources. Similarly, South Africa has 77% of the world’s manganese reserve base and 88% of the reserve base for the platinum group metals”.(8) The geographic concentration of these minerals and lack of alternative supplies or substitutes make them strategically important to China and other industrial states and contribute to China’s interest in Africa.


China is also the fastest growing consumer of energy in the world; and similar to the security of minerals, the source of China’s oil imports is therefore, of significant strategic importance as well. In the last few years, Chinese companies have attempted to sign exploration contracts in nearly every African country with potential oil resources.


Conclusion


China’s recent diplomatic visits to South Africa, Angola and Botswana clearly indicate the Asian giant’s need to promote bilateral relations and cooperation in order to spur investment and obtain resource security. While some critics have argued that China’s activities in Africa have created a relationship of exploitation, others have seen this relationship as mutually beneficial. On one hand, China will be able to secure the natural resources it needs to be able to sustain its bourgeoning economy and population, while Africa will be able to speed up development, thus firmly placing it on the international market. China is known for showing interest in developing nations, while Africa is in dire need of partnerships with new economic powers. In light of this, any negative consequences of the China-Africa dynamic have so far been outweighed by its benefits.


Written by: Daniela Kirkby (1)


NOTES:


(1) Contact Daniela Kirkby through Consultancy Africa Intelligence's Asia Dimension Unit (asia.dimension@consultancyafrica.com).
(2) South African Department of Trade and Industry Economic Database, http://www.dti.gov.za.
(3) Ibid.
(4) ‘China, Angola Sign Agreements as Vice-President Xi Visits’, Channel News Asia, 20 November 2010, http://www.channelnewsasia.com.
(5) China’s no-strings-attached mentality on aid which does not impose conditions to financial assistance has developed a more than eager need for African leaders to forge closer bonds with China
(6) Kevin Hamilton and Li Yanpin, ‘China’s Economic Growth Cools to Slowest Since 2005’, Bloomberg, 17 July 2008, http://www.bloomberg.com.
(7) Kent Hughes Butts and Brent Bankus, ‘China’s Pursuit of Africa’s Natural Resources’, Volume 1-09 June 2009, http://www.csl.army.mil.
(8) Ibid.


 

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